China Us A Chill Down the Spine

The opacity and frequent false alarms about Chinese growth have left traders jaded but the concerns are mounting. The commodity bloc suffered to start the week as those fears percolate while the pound led the way as the real money flows we wrote about yesterday return. But the main focus will remain on China with the manufacturing PMI due next. 

All areas of Chinese growth are suspect and last week's surprise liquidity injection left of us two minds. The willingness to act by China's central bank was proactive and crushed speculation they were going to sit on the sidelines. On the flipside, perhaps they wanted to stay on the sidelines but were forced to act based on the severity of circumstances.

This week worries focus on the property market and that has been a perpetual focus because of the abundance of evidence of shady financing and rapid price rises.

If any of the fears prove to be substantiated the floors for the commodity currencies (and commodities themselves) could be much lower.

The focus now shifts to the Chinese flash manufacturing PMI at 0145 GMT. The consensus is for a slide to 50.0 from 50.2. A slide to 49.9 or lower would be a psychological blow at a delicate time as it also indicates a contraction.

Otherwise, watch for comments from Fed dove Kocherlakota at 2330 GMT. A less dovish tone would signal a broader shift at the FOMC and Kocherlakota is known to change his mind.